The global supply chain has experienced unprecedented challenges in the past five years. These challenges have impacted distributors within the adhesives and sealants industry and companies depending on that supply chain. What are the main concerns currently facing the industry and how are geo-political challenges in the world affecting distribution? Faced with these supply chain challenges, how can suppliers and purchasers of raw materials and chemicals benefit from working with a distributor? Representatives from Palmer Holland and the Alliance for Chemical Distribution (ACD) answer these and other questions in this year’s distributor roundtable discussion.
ASI: What are the top three concerns currently faced by your raw materials/chemicals brands?
Eric Byer
Eric Byer, president and chief executive officer at the Alliance for Chemical Distribution (ACD): The chemical distribution industry is facing a range of challenges, but most pressing are the recent onslaught of regulations, threats to chemical security, and ongoing rail service challenges.
The current administration has recently unleashed various heavy-handed rules and regulations. Many of these regulations impose complex new requirements on businesses who are already in compliance. From the U.S. Environmental Protection Agency to the Internal Revenue Service, and the Occupational Safety and Health Administration, this onslaught of regulations will have lasting impacts on industries across the nation. For small businesses, including many ACD members, this surge of final rulemakings causes grave uncertainty and forces businesses to divert resources from regular business operations to ensuring compliance with costly regulations that do little to move the needle on their stated objectives.
This current regulatory overreach is coupled with a serious lack of action on Capitol Hill. More than a year ago, on July 28, 2023, the chemical distribution industry lost a vital tool to protect our chemical facilities from bad actors. The Chemical Facility Anti-Terrorism Standards (CFATS) program was created in 2007 to help prevent terrorist attacks on high-risk chemical facilities. Since then, CFATS has been recognized as the global standard for chemical facility security. The program encouraged collaboration and communication between chemical facilities, the U.S. Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency, and local law enforcement to put key safeguards into place against the latest and evolving threats to the chemical industry. The CFATS program was one of the most successful chemical security programs available to the industry and its lapse has left our nation’s facilities more vulnerable than ever.
In addition to security threats and regulatory burdens, our industry is also facing ongoing challenges to the supply chain. For far too long, freight rail service has been unreliable for the countless businesses and industries that rely on it to deliver critical products day-to-day. The National Transportation and Safety Board’s recent report on the devasting East Palestine derailment renewed the urgency for lawmakers to act. Congress must find consensus on commonsense reforms to address ongoing operational challenges, enhance safety measures, and resolve the unacceptable disruptions and practices of Class I railroads.
Samantha Brooks
One, volatility in raw material prices. We’ve seen volatility in raw material prices driven by a complex interplay of geopolitical tensions, supply chain disruptions, fluctuation in crude oil prices, environmental regulations, and economic factors. Fluctuating prices of key raw materials used in adhesives and sealants can present significant challenges to forecasting costs and managing budgets. Palmer Holland helps our customers mitigate the challenges of price volatility by offering a range of customized solutions such as price protection to create price stability, advanced buys, dynamic inventory management strategies, payment term flexibility, rebates, and more.
Two, environmental regulations and sustainability. Stringent and evolving environmental regulations, coupled with the increasing demand for sustainable materials, impose additional pressure on raw materials and brand owners. We continue to see the evolution of stricter regulations on emissions, waste management, and the use of hazardous substances to mitigate environmental impact. We’re also seeing an increase in consumer demand for environmentally friendly products and corporate social responsibility initiatives that are driving the need for sustainable sourcing. We keep a pulse on the latest regulations and compliance requirements to provide valuable guidance and resources to our customers.
Three, current macro-economic conditions. The chemical industry is navigating a complex macroeconomic environment characterized by slower global growth, high inflation, high borrowing costs, supply chain disruptions, and various other challenges.
ASI: How are geo-political issues, such as the wars in Ukraine and Gaza, impacting today’s supply chain?
Byer: Chemical distribution is a global business, and because many chemical products are no longer made in the U.S., ACD members must often source chemicals overseas. Severe supply chain challenges affect a wide range of industries in the U.S., and geopolitical conflicts threaten severe disruptions on an already fragile shipping system.
As a result of tensions in the Middle East, our members must navigate severe delays and rising costs. The interwoven nature of global shipping means these disruptions impact the entire ocean shipping landscape, translating to increased rate surcharges placed on shipments outside these regions.
To put this into perspective, in the past year, ACD members and our supply chain partners in the adhesives and sealants industry have faced disruptions and increased costs for shipments through the Panama Canal, as well as in and out of China and Taiwan. Earlier this year, shipments through the Red Sea almost came to a standstill due to the heightened risk of Houthi pirates commandeering vessels.
Current rate increases and disruptions are not dissimilar to what we saw in the early stages of the COVID-19 pandemic. Our members supply products that are necessary for water treatment, food preservation, medicines, agricultural processes, as well as products needed to manufacture firefighting materials, sanitation products, and more. Because of the essential nature of our industry, Congress, the Federal Maritime Commission, and the international community must do everything they can to ensure the continued transport of essential chemical products.
Brooks: Raw material suppliers are experiencing significant impacts from the current geopolitical issues, including increased energy costs, shipping constraints, and extended lead times.
- Energy price volatility: Both conflicts have significantly impacted global energy prices. Russia is a major supplier of natural gas and oil to Europe. Sanctions and disruptions in supply have led to increased energy prices. With the rise in energy prices, production costs have surged, forcing raw material suppliers to diversify supply sources and/or adapt or shift their operations to manage increased risks and uncertainties. As for Gaza, the Middle East is a critical region for global oil supply. Any instability or conflict in this region tends to create fears of supply disruptions, driving up oil prices and impacting transportation and production costs worldwide
- Shipping constraints: The conflicts in Ukraine and Gaza have also disrupted shipping routes and port operations, adding to the container shortages. These geopolitical issues have led to the rerouting of vessels and increased transit times, further straining the availability of containers.
- Notable mention: The Red Sea region has seen increased attacks on commercial ships. These attacks have raised significant security concerns, prompting many shipping companies to reroute vessels away from the Red Sea and the Suez Canal to avoid these risks. This rerouting significantly increases the distance and transit times for shipments between Asia, Europe, and the Americas.
ASI: What are the biggest challenges currently facing purchasers of raw materials/chemicals?
Byer: Global supply chain pressure points continue to be one of the largest challenges our partners must navigate. Businesses assumed we saw the worst of supply chain disruptions and uncertainty during the height of the pandemic, but shipping challenges and looming labor strikes place significant challenges on the chemical distribution industry and our customers. It’s clear that we will not return to “normal.” Instead, supply chain fluctuations are the “new normal.” Luckily, situations experienced during the pandemic have better prepared the chemical distribution industry and other businesses across the supply chain for instances like this.
Most recently, pressure to work around Red Sea disruptions have forced shipping vessels to pursue alternative routes, which have delayed the timely shipment of critical chemical products and negatively impacted end-users. Additionally, because of these logistical challenges, shipping carriers across the globe have increased the rates for cargo coming from Asia to the East Coast with costs jumping by 130 percent. The increased rates we are seeing today are similar to what we experienced four years ago.
Apart from economic downturns and labor shortages, purchasers of chemical products must also be aware of the looming threat of labor strikes at our nation’s ports and Canada’s rail system. Unresolved labor contract negotiations at our nation’s ports place strain on our supply chain and result in the transfer of cargo to other ports due to the uncertainty. These delays impact the efficient business of purchasers of raw materials.
Similarly, the chemical distribution industry relies heavily on rail service to safely and effectively deliver these products throughout the supply chain. A rail strike of any duration, even in bordering Canada, would exacerbate existing challenges and place significant costs on business down the supply chain.
Brooks:
- Insecurity and instability in the global supply chain driven by geopolitical conflicts, port congestions, container shortages, price volatility, and labor shortages.
- The macroeconomic environment has created many headwinds for our customers, especially those in building and construction. High interest rates have significantly impacted the housing market by decreasing affordability and slowing year-over-year home sales and new construction.
- As mentioned above, price volatility.
ASI: What benefits can working with a distributor provide for both suppliers and purchasers of raw materials and chemicals?
Byer: The role of the chemical distribution industry has changed greatly over the last few decades. Chemical distribution was mostly transactional in the early days, delivering suppliers and purchasers with the raw materials and chemical products they needed to fulfill their customers’ orders. Today, however, the landscape of offerings has advanced significantly. The diversification of products and services that ACD members now provide include industry and logistical expertise, technical know-how, and compliance and supply chain support. These services help address the specific needs of our supply chain partners, including more recently sustainability initiatives.
ACD has built the industry’s most comprehensive environmental, health, safety, security, and sustainability standards through the ACD Responsible Distribution™ program. ACD members are constantly improving and implementing better practices throughout every phase of chemical storage, handling, transportation, and disposal. Responsible Distribution’s new sustainability code gives our members, and our supply chain partners, the framework to effectively demonstrate to partners and customers what they have achieved so far and identify initiatives they have not yet tackled. The chemical distribution industry has enhanced its offerings to not only ensure functionality, but embrace commonsense sustainability initiatives, such as offering low volatile organic compound products.
In the 21st century global economy, chemical distribution professionals are recognizing the key market trends, evolving customer needs, and innovative technologies that make our services and expertise critical to the day-to-day work of our downstream partners.
Brooks: Some of the benefits of working with Palmer Holland include:
Benefits to suppliers:
- Broader reach with improved sales coverage and sales results
- Provide a deep understanding of the market
- Increased market traction
- Improved sales support functions
- Cost reduction and improved operational efficiencies
- Increased customer satisfaction levels
- Marketing support
Benefits to customers:
- Supply stability and simplification
- Noise mitigation
- Tail spend management
- Improved working capital utilization
- Inventory management
- Financial risk management
- Flexibility and customization
- Direct access to chemists
Benefits of working with Palmer Holland and an employee-owned company
- Greater emphasis on providing value to customers
- Lower organizational turnover
- Increased innovation and efficiency
- Dedication to long-term success with our current and future partners
- Enhanced operational stability and continuity
ASI: How can purchasing and supply chain managers optimize their relationships with distributors?
Byer: If the pandemic taught us anything, it’s that we can never be too prepared. Anticipating product backlogs and seasonal demands can help supply chain managers ensure needed chemicals are in stock and available. Chemical distribution professionals prioritize building strong partnerships with their customers, so that when challenges arise, we can quickly work with partners across the supply chain to identify and address solutions. ACD members also provide logistical support to our purchasers, driving cost reductions, improved product availability, and smoother operations.
By collaborating with supply chain partners throughout the year, the chemical distribution industry and its customers can better understand and prepare for cyclical demands, particularly in volatile or seasonal markets. For example, as we enter hurricane season on the East Coast, it will be important that our partners consider the potential damage to ports and the impact on the delivery times of their shipments. Many of our partners are already aware of the existing shipping delays and rising costs that are taking place across the globe. Any impact to the day-to-day operations of our nation’s ports will undoubtedly trickle down the supply chain.
Finally, changes to the policy landscape impact varying aspects of the supply chain. That’s why ACD is constantly monitoring the regulatory environment and its impact on chemical distribution members and our partners, like adhesives and sealant businesses. Optimizing long-term partnerships with our customers leaves us all better prepared and equipped to tackle the market fluctuations of today and the unknown supply chain challenges of tomorrow.
Brooks: Optimizing relationships with distributors and supply chain managers requires a strategic approach focused on collaborative planning and building long-term partnerships.
Collaborative planning is key to a successful relationship between distributors and supply chain managers. When supply chain shares accurate and timely demand forecasts, we can manage inventory effectively and ensure timely supply. We also like a more collaborative approach to information sharing. When we better understand your objectives and growth strategies, we can help synchronize efforts and find customized solutions to help you achieve your goals.
At Palmer Holland, we focus on building long-term partnerships rather than transactional relationships. We feel this is critical to ensuring a stable supply chain, effective communication, flexibility, risk mitigation, and overall success.
For additional information about the Alliance for Chemical Distribution (ACD), visit www.acd-chem.com.
Learn more about Palmer Holland at www.palmerholland.com.
